Judge makes key Friedman's rulings

A U.S. Bankruptcy Court judge has made two rulings that Friedman's Inc. officials hope will bring some calm to turbulent times at the Savannah-based jewelry giant.

Late Monday afternoon, Judge Lamar Davis Jr. approved a new compensation program for Friedman's executives, then gave the retailer a nearly 10-month extension to file its reorganization plan.

The reorganization plan is a necessary tool to bring the company of 4,500 employees out of Chapter 11 bankruptcy, filed Jan. 14.

Judge Davis felt the extension on the period of exclusivity - the time during which only Friedman's can file such a plan with the court - is needed to bring the company comfortably through the Christmas season, a four-week span during which it makes almost half its sales.

The compensation program, the judge found, is needed to keep Friedman's' 83 upper-level managers around long enough to usher the company into fiscal solvency.

It gives them salary bonuses if the company exceeds 2005 earnings projections by certain amounts, and provides cash and stock awards if Friedman's (FRDMQ.PK) emerges from Chapter 11.

Davis found that in the small world of retail jewelry chains, it is likely that absent the incentive bonuses, key Friedman's executives - including CEO Sam Cusano - would jump ship to more stable competitors.

"Stability and continuity in senior management are critical to the success of this company," he wrote. "And compared to other plans ... (it) is fair and reasonable, and calculated to maximize the value of the company."

Some shareholders had argued that the compensation was too generous with too many unknowns, and that the extension to February 2006 on the period of exclusivity was extraordinarily long.

Jeff Morris of the American Bankruptcy Institute said it is indeed an unusually long time - normally a judge grants extensions in three-month increments.

But Morris said it was not abnormal for a retailer like Friedman's, which does so much of its business in the last quarter of the year.

"The expectation is that until they go through the holiday season it will be hard to know how it will be able to resolve its issues," Morris said.

Davis also found that Friedman's likely has too much on its plate now to worry about a reorganization plan.

The company is under investigation by attorneys general in more than 20 states, it must secure additional financing, close more than 140 stores and restore confidence in jewelry-making vendors who were not paid twice last year and are now deciding whether to accept orders from the retailer for the upcoming Christmas season.

"On such a record it would be an exercise in futility and would impose unwarranted and unnecessary expenses upon (Friedman's) ... to limit the extension of exclusivity," Davis wrote.